Homo Calculus

People ask about Enron. They ask about Andersen, and Global Crossing. Editorial sleuths go about unearthingdirty secrets, investigators piece together shredded paper, and politicians pontificate. In this collectiveshaking of heads, it becomes bafflingly clear that values have been disregarded by a whole army ofmiddle-class professionals who are just like you and me. Baffling indeed, for values, after all, are amiddle-class fetish. But who’s stolen our very own crown jewels? Amidst all the finger pointing, I see anunlikely culprit: the calculator. The miracle machine that allows us to deduct cost from benefit, loss fromgain, lets us merrily trade-off one good for another, has turned us into a new species - Homo Calculus - andset us down the road to ruin.

There was a time when it was fashionable to speculate on the sources of human behaviour. Philosophers andpsychologists spent careers trying to capture the complexities of human motivation within their models. Archrivalries grew out of contending views, some of which have remained with us - Plato’s Kinship, Maslow’sNeeds, Marx’s Class War, to name a few. If anything, these models have served to illustrate the point thatwe, Homo Sapiens, can be wonderfully diverse, and rather slippery to mould. Of late, however, a specific modelhas taken hold of our collective imagination, threatening to erase all that we knew to be true, even partiallytrue, about us. And, it has come from the pen of two business professors.

In a widely cited article written in 1994 ⁽¹⁾, Michael Jensen and William Meckling argue thatall behaviours of all humans can be successfully explained by a model that describes us as resourceful,evaluative, maximising beings (REMMs, in short) who are always willing to trade-off a quantity of one good forthat of another. We respond to our environment, they claim, by seizing opportunities that maximise personalgain, which we are able to perceive clearly through evaluating our choices and by displaying the flexibilityof substitution.

The REMM is willing to give up some sufficiently small amount of any good for some sufficiently largeamount of other goods. Inside our minds are smart calculators, which operate not on the basis of absoluteneeds, but temporary wants. Jensen and Meckling, in fact, hail the Homo Calculus as a far more liberatedspecies than the Homo Sapiens, unencumbered as it is by the messy business of irrational needs, ideologies,and quaint values. Behaviours of REMMs are championed as rational, flexible, and downright efficient –qualities that have of late taken over the hallowed seat of values.

Like it or not, REMMS we have become, and unwittingly. Think of any domain of our lives, and you’ll seethe indelible trace of trade-offs. The calculator has made it easier to make and justify our decisions, fromchoosing a car to buying a house. Armed with information, a list of costs and benefits, we have managed toeliminate anxiety from choice. The culture of managerialism within which we exist, has heightened ourchallenge to ‘achieve goals with limited resources,’ a task well suited to the spirit of smart choices.

Trade-offs, in fact, have come to govern large swathes of management practice: long-term vs. short-term,market share vs. profitability, make vs. buy, cash flow vs. ROI, and so on. Listen to any management guru andthe message that’ll come through is that there is no absolute good, simply actions that might deliver thegoods. The challenge of management then, as with much else in life, is to figure out what works best where andrid us of the useless. Jensen and Meckling, while certainly not responsible for the cult of the calculator,aren’t too far off describing our world that has increasingly come to resemble a giant Weight Watcher’sdiet, with an exciting variety of trade-offs that can help us reach the target number of points.

What about items that shouldn’t be traded, that can’t be entered into our calculators? Despite numeroustreatises on Value-Based Management, values themselves – such as truthfulness and integrity – are toounwieldy when it comes to combining them with other decision factors. They are unwieldy because they suggestfixity while all else is variable; they carry the unpleasant whiff of dogma in an open-ended setting.Additionally, they don’t promise to maximise anything, offering simply psychic gratification.

When was the last time we heard of a CEO being congratulated by his/her board or fêted by the media forincurring a loss on the back of a value-based decision? Yet values, drawn from human experience and/or faith,could very well lead us to defeat just as they might to success. History is replete with martyrs, who havedone just that – died for their values. Yet nobody, not even the harshest critic of corporate governance,would deem that to be appropriate.

It is important to realise that Enron et al aren’t simply corporate perversities, or the mischief of afew wayward managers. They illuminate a deeper question: can the conduct of business be any different from ourconduct of life? Will the model we enshrine invariably percolate everywhere, finding its way from thesupermarket to the boardroom?

It’s time for the Homo Sapiens to stand up to the Homo Calculus.

Kunal Basu is Fellow in Strategic Marketing at Oxford and co-author of ‘Memo to CEOs’ (Fast Company)and‘ Beyond Selfishness’ (Sloan Management Review), both recently published to great acclaim.

1. ‘The Nature of Man’, by Michael C. Jensen & William H. Meckling, Journal of Applied CorporateFinance, Summer 1994, V. 7, No. 2, pp. 4–19  Also see: ‘Memo to CEOs’, by Robert Simons, HenryMintzberg & Kunal Basu, Fast Company, June 2002, 117–121. ‘Beyond Selfishness’, By Henry Mintzberg,Robert Simons, & Kunal Basu , Sloan Management Review, October 2002.